Background
The Law Office of Melvin O. Shaw leased commercial space from A & M Development in Coralville, Iowa. The lease gave Shaw a right of first refusal: if A & M received a bona fide third-party offer for the unit, it had to notify Shaw and allow him to purchase on the offered terms. A & M sold the unit to the Mostafavi family in 2015 without giving Shaw notice.
Shaw learned of the sale months later, continued leasing the space from the new owners, and unsuccessfully sought to purchase it several times. In 2022, he demanded the terms of the 2015 offer, and A & M acknowledged that it had failed to honor the right of first refusal. Shaw sued for breach of contract in 2023. Following a bench trial, the district court awarded him $257,216 in damages plus post-judgment interest, accounting for unrealized appreciation, the difference between rent and the mortgage payments he would have made, and lost principal.
The Court’s Holding
The Iowa Court of Appeals affirmed. The majority held that A & M failed to establish estoppel by acquiescence. Its breach was complete when it sold the property without notifying Shaw, and Shaw’s damages claim was subject to the ten-year limitations period. His later dealings with the new owners—including negotiating leases and seeking another right of first refusal—did not show that he intended to waive his claim against A & M.
The court also rejected A & M’s failure-to-mitigate defense. Shaw did not simply allow his losses to accumulate; he repeatedly asked the new owners to sell him the unit, which could have limited his damages. Nor was his decision not to sue sooner, without more, unreasonable when the claim remained timely. Judge Greer dissented, reasoning that Shaw’s years of inaction, continued rent payments, and lease renewals implied that he had abandoned the contractual right under estoppel-by-acquiescence principles.
Key Takeaways
- A landlord’s sale of property without the notice required by a tenant’s right of first refusal completes the breach of that contractual right.
- For a damages claim against the former owner, delay within the applicable limitations period does not alone establish waiver through estoppel by acquiescence.
- A defendant asserting failure to mitigate must prove a reasonable mitigating step the plaintiff unreasonably failed to take and a causal connection to the claimed damages.
Why It Matters
The decision distinguishes a timely damages action against a seller that breached a right of first refusal from a request for specific performance against a new owner, which may require more prompt action. It also makes clear that merely waiting to sue does not automatically prove either waiver or an unreasonable failure to mitigate.
The dissent highlights a competing view with practical significance for commercial leasing: a tenant’s continued performance and prolonged silence after learning of an unauthorized sale may, in some circumstances, imply abandonment of the breached contractual right.